By Tiernan Ray

The Street today is weighing the likely impact of yesterday’s performances by hedge fund manager David Einhorn of GreenlightCapital, who appeared on CNBC and Bloomberg to pitch his proposal that the company issue preferred shares with a 4% dividend yield.

Einhorn is separately suing the company on a procedural issue pertaining to its proxy statement to shareholders for the February 27th annual meeting, claiming that it’s wrong for Apple to address his proposal through a proxy item. Apple later in the day responded in a press release that it intends to consider Einhorn’s proposal and that the proxy does not preclude adopting the measure, while noting that the board of directors “have been in active discussions about returning additional cash to shareholders.”

CEO Tim Cook is scheduled to speak at 1:15 pm, Pacific Time, next Tuesday, February 12th, at Goldman Sachs‘s technology conference in San Francisco, immediately following Yahoo! (YHOO) CEO MarissaMayer, who goes on at 12:30.

The stock today is up $7.59, or 1.6%, at $475.81.

The options trading team at Susquehann Investment Group this morning writes that “We find that the option-implied dividend has increased only slightly over the past week, with the options continuing to price in largely the status quo over the next year or two.”

The team go through the mechanics of a “synthetic stock price” that reflects future dividend streams, noting it hasn’t shown much of a lift in the last week despite the dividend chatter:

Options positions can be combined to create a “synthetic stock position,” similar to a future on the stock. A combination of long call and short put in the same strike and same expiration (often referred to as a “combo”) can effectively replicate the performance of the underlying asset [...] In an effort to identify any shift in sentiment regarding AAPL’s dividend policy in recent days, we will compare the market value of one January 2014 combo as of yesterday’s close to its value as of last Friday. First, we look at the value of the January 2014 500 combo as it appeared as of last Friday’s close, when the stock closed at $453.62. At the time, the 500 calls were trading mid-market around $26.73 while the puts were trading mid-market around $80.93, setting up a combo worth ($54.20). Based on our interest rate assumption, this implied a cumulative dividend stream of $10.22 expected over the next four quarterly dividends [...] Yesterday, the 500 calls closed around $35.40 and the 500 puts closed around $72.95, setting up a combo worth ($37.55). Importantly, we must account for the fact that the stock actually paid out one quarterly dividend in the interim (stock went ex yesterday), so we should automatically expect that $10.22 cumulative dividend to decrease by $2.65, resulting in a total expected cumulative dividend around ~$7.57 if all else remained equal. In fact, once we calculate the implied dividend stream using yesterday’s markets, we find that the total implied dividend of ~$8.13 is only up slightly [...] After accounting for this week’s $2.65 dividend, it appears that the remaining January 2014 cumulative dividend (three expected quarterly dividends) increased only moderately, from ~$7.57 to ~$8.13, or ~$0.56 over three remaining dividends. Again, there are multiple assumptions involved in our implied dividend calculation, and we would not recommend viewing the outputs as precise market expectations.

S&P Capital IQ‘s Scott Kessler this morning reiterates a Strong Buy rating on the stock, writing simply “AAPL’s shareholder meeting is set for February 27, and we expect the company to become more proactive and aggressive with its balance sheet.”

Goldman Sachs’s Bill Shope appears to have issued a bullish report on the stock this morning, though his writing is not available to me at this time.

Barclays Capital‘s Ben Reitzes , who has an Overweight rating on the shares, and a $575 price target, today writes in a note to clients, “prospects are increasing for even more cash to be returned to shareholders from Apple given shareholder pressure, prospects for strong cash generation and the recent sell-off in shares.”

Reitzes thinks the stock can rally this year based on the prospect of Apple increasing its total payout, even without tapping overseas cash:

More importantly, in our view, Apple stated that the management team and Board of Directors have been in active discussions about returning additional cash to shareholders. We believe that Apple has room to increase its total cash outlay for dividends and buybacks by 30-40% over the next 3 years without having to access overseas cash. We note that Apple had about $137 billion of total cash and investments including $43 billion of domestic cash and $94 billion of overseas cash. Based on these balances and our future cash flow estimates, we believe Apple could increase the size of its current 3-yr $45 billion capital return program ($10 billion completed by next week) by 30-40% – without needing to access cash overseas and incurring a tax liability. We are currently forecasting free cash flow of $44.29 billion in 2013 ($46.89 per share) and $51.07 billion in FY14 ($54.35 per share). Recall that in March of 2012, Apple unveiled a new dividend and share repurchase program. The company started a quarterly dividend of $2.65/share ($10.60 annualized) which was first paid in 4QFY12 and consumes about $10 billion in cash per year. At that time, Apple indicated it would periodically discuss updating the dividend but no timeframe was set. In addition, the Board of Directors authorized a $10 billion share repurchase program that began in Apple’s FY13. The repurchase is expected to be executed over three years primarily to neutralize the impact of dilution from future employee equity grants and employee stock purchase programs.

Janney Capital Markets’s Bill Choi reiterates a Buy rating on the shares, and a $610 “fair value” estimate, writing that “The issuance of preferred shares are in consideration, but we believe Apple is more likely to simply issue a higher dividend on outstanding shares.”

The company can certainly support a 4% dividend, he thinks, which is likely to “help expand the shareholder base:

Apple indicated that they started generating excess cash as of early 2012. Cash in early 2012 was $100-$110B, which suggests Apple currently has nearly $27B above what they consider to be the necessary levels needed to run the business. Recall that roughly $94B of Apple’s $137B cash balance resides offshore, and the current dividend is based solely on US holdings. Apple generates $40B+ in annual FCF, which roughly equates to $42/shares in cash or 9% yield. Slightly more than half of this FCF is generated internationally, so we believe US CF could comfortably support a yield of 4% (current dividend yield is 2.3%).

R.W. Baird‘s William Power , reiterating a Neutral rating on the shares and a $465 price target, is less enthusiastic than the others, writing that, “This could provide a near-term catalyst, but should come as no surprise.”

“Our near- to medium-term concerns remain rooted in risks to meeting consensus estimates over the next couple of quarters and full year based in part on decelerating iPhone sales.”

Power hammers on the theme of earnings estimate risk:

In addition to long running gross margin concerns, we fear that consensus estimates remain too high, particularly for the June quarter and full year, potentially setting the company up for another guidance miss when it reports March-quarter results [...] For perspective, we forecast June-quarter revenue and EPS of $36.2 billion and $8.53, vs. the Street at $40.8 billion and $9.71. We believe the Street estimates could be too aggressive without a significant re-fresh or new product [...] Estimates below the Street. Our 2013 and 2014 revenue estimates are 6.3% and 10.8% below the Street, with our EPS estimates 8.0% and 13.7% below consensus.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.